Question

At the beginning of 2011, Thompson Service, Inc., showed the following amounts in the stock-holders’ equity section of its balance sheet:
Stockholders’ equity:
Capital stock, $1 par value, 500,000 shares authorized,
382,000 issued and outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 382,000
Additional paid-in capital: capital stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,202,000
Total paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $4,584,000
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,704,600
Total stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $7,288,600
The transactions relating to stockholders’ equity during the year are as follows:
Jan. 3 Declared a dividend of $1 per share to stockholders of record on January 31, payable on February 15.
Feb. 15 Paid the cash dividend declared on January 3.
Apr. 12 The corporation purchased 6,000 shares of its own capital stock at a price of $40 per share.
May 9 Reissued 4,000 shares of the treasury stock at a price of $44 per share.
June 1 Declared a 5 percent stock dividend to stockholders of record at June 15, to be distributed on June 30. The market price of the stock at June 1 was $42 per share.
(The 2,000 shares remaining in the treasury do not participate in the stock dividend.)
June 30 Distributed the stock dividend declared on June 1.
Aug. 4 Reissued 600 of the 2,000 remaining shares of treasury stock at a price of $37 per share.
Dec. 31 The Income Summary account, showing net income for the year of $1,928,000, was closed into the Retained Earnings account.
Dec. 31 The $382,000 balance in the Dividends account was closed into the Retained Earnings account.
Instructions
a. Prepare in general journal form the entries to record the above transactions.
b. Prepare the stockholders’ equity section of the balance sheet at December 31, 2011. Use the format illustrated in Exhibit 12–6 . Include a supporting schedule showing your computation of retained earnings at that date.
c. Compute the maximum cash dividend per share that legally could be declared at December 31, 2011, without impairing the paid-in capital of ThompsonService.


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  • CreatedApril 17, 2014
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